Last week, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule addressing numerous issues under the Medicaid Drug Rebate Program (MDRP), including the impact of pharmacy benefit manager (PBM) accumulator programs, value-based purchasing (VBP) arrangements, line extensions and authorized generics (Proposed Rule).1 Comments on the Proposed Rule are due by July 20, 2020. A number of these proposals raise significant policy, statutory and regulatory issues or concerns.

PBM Accumulator Programs The Proposed Rule addresses PBM accumulator programs used by payors. The Agency states that payors “are being instructed or encouraged by their [PBM] to apply manufacturer sponsored patient assistance programs, such as patient copay assistance programs, to the benefit of the plan, instead of entirely to the patient.” In these circumstances, according to CMS, the payor does not apply the manufacturer-sponsored copay assistance benefit to the deductible or other cost-sharing obligations that the patient is required to pay to the health plan. CMS states that “[t]his results in the health plan delaying the application of its plan benefit to the patient to the detriment of the patient or consumer, thus generating savings for the plan.” Based on this analysis of accumulator programs, CMS proposes to revise certain Average Manufacturer Price (AMP) and best price exclusion provisions that relate to manufacturer-sponsored patient assistance programs. Specifically, for the best price exceptions outlined in § 447.505(c)(8) through (12) and the corresponding AMP exclusions outlined at 42 C.F.R. § 447.504(c)(25) through (29) and (e)(13) through (e)(17), CMS proposes to revise the regulatory language so that each exclusion would apply “only to the extent the manufacturer ensures the full value of the assistance or benefit is passed on to the consumer or patient.” The proposed change would affect the following types of manufacturer programs or assistance: drug discount card program, coupons to a consumer, copayment assistance programs and patient refund or rebate programs. The Proposed Rule does not outline how a manufacturer would operationally “ensure” that the full value of assistance or benefit is passed on to the consumer or patient. However, CMS states its belief that “manufacturers have the ability to establish coverage criteria around their manufacturer assistance programs to ensure the benefit goes exclusively to the consumer or patient.”

VBP Arrangements CMS states that the Proposed Rule seeks to advance the Agency’s efforts to support state flexibility to enter innovative VBP arrangements with drug manufacturers and to provide manufacturers with regulatory flexibility to enter VBP arrangements with commercial payers. CMS proposes to add a definition of VBP arrangement as

an arrangement or agreement intended to align pricing and/or payments to an observed or expected therapeutic or clinical value in a population (that is, outcomes relative to costs) and includes (but is not limited to): (1) Evidence-based measures, which substantially link the cost of a drug product to existing evidence of effectiveness and potential value for specific uses of that product; (2) Outcomes-based measures, which substantially link payment for the drug to that of the drug’s actual performance in a patient or a population, or a reduction in other medical expenses.

CMS invites stakeholders to provide suggestions for other measures that could be used to reflect value from a drug therapy as part of a final definition as well as suggestions on how to interpret “substantially” as used in the proposed definition.

CMS also proposes to revise the definition of bundled sales at 42 C.F.R. § 447.502 to add a new paragraph providing that VBP arrangements “may qualify as a bundled sale, if the arrangement contains a performance requirement such as an outcome(s) measurement metric.” In making its proposal, CMS states that this proposal will “permit manufacturers to have a best price that is not based upon the failure of one patient taking the drug.”

Further, CMS proposes to revise the regulatory interpretation of “best price” to reflect the possibility that “VBP and other innovative payment arrangements sometimes result in various price points for a dosage form and strength of a drug or therapy being available in a quarter.” This proposal, if finalized, would permit a manufacturer “to report a single best price for the drug for the quarter for sales of the drug in that quarter” (as under the current regulations) or to report a “distinct set of ‘best prices’ ” that would be available based on the range of evidence-based or outcomes measures that are possible for that drug under VBP arrangements. CMS acknowledges the operational difficulties that this change could create for MDRP systems and requests comments on this proposal. Finally, CMS proposes allowing manufacturers to submit data relating to a VBP arrangement after the 12-quarter period ended and adjusting data based on performance results under the VBP that tracked patient outcomes beyond three years. CMS does not address how this proposal will be operationalized in the MDRP systems.

Line Extensions CMS also addresses the topic of line extensions, stating that it is doing so in response to requests for more specific guidance on the definition of line extension. CMS further states that there may be inconsistencies among manufacturers in their identification of line extension drugs. CMS thus purports to define “line extension” consistent with the Medicaid statute: “for a drug, a new formulation of the drug, but does not include an abuse-deterrent formulation of the drug (as determined by the Secretary).” CMS next proposes a new regulatory definition for the term “new formulation”:

for a drug, any change to the drug, provided that the new formulation contains at least one active ingredient in common with the initial brand name listed drug. New formulations include, but not be limited to: Extended release formulations; changes in dosage form, strength, route of administration, ingredients, pharmacodynamics, or pharmacokinetic properties; changes in indication accompanied by marketing as a separately identifiable drug (for example, a different NDC); and combination drugs, such as a drug that is a combination of two or more drugs or a drug that is a combination of a drug and a device.

CMS then provides detailed discussion on components of this definition, including the proposal to include new strengths, new indications and combination drugs. CMS also makes the following proposals:

  • Only the initial single-source drug or innovator multiple-source drug must be an oral solid dosage form.
  • The term “oral solid dosage form” would mean “an orally administered dosage form that is not a liquid or gas at the time the drug enters the oral cavity.”

Authorized Generic Drugs The Proposed Rule addresses authorized generic drugs and manufacturers’ methodology for calculating AMP for a covered outpatient drug for which the manufacturer permits an authorized generic to be sold. The proposed regulatory revisions purport to implement the Health Extenders Act of 2019, the Continuing Appropriations Act of 2020 and CMS subregulatory guidance.

A copy of the Proposed Rule is available here.